Building quality of life together

Towards a new economics of wellbeing

In the framework of the Bellagio Initiative, The Broker hosted a lively online debate on human wellbeing and inclusive economics in the 21st century. Our contributors agree that economic growth as measured by gross domestic product (GDP) generally has very little to do with human wellbeing per se. We should start viewing and measuring development as a social phenomenon that originates in the social nature of human beings. Although it is no easy task to find an equally simple and intuitive alternative indicator, we should look towards the relational aspects of wellbeing to come up with a socially oriented parameter that does justice to what actually makes life worthwhile.

According to Allister McGregor, leader of the Vulnerability and Poverty Reduction Team at the Institute of Development Studies in Brighton, the United Kingdom, the real challenge of our time is in achieving more equitable human wellbeing and finding ways of living together in a world system in which we experience resource scarcity, complex risks and widespread inequality.

The prevailing sentiment among the contributors to the Bellagio discussion is that the traditional focus in economics on growth and GDP per capita is no longer a viable indicator of progress. ‘Everybody knows the limitations of economic growth and GDP,’ says Dirk Bol, a Dutch economist with extensive experience in development, in his blog post. Of course, economic growth remains relevant as there can be no sustainable redistribution of wealth and income without it, but we do need to acknowledge its limitations and radically alter our understanding of it.

So while growth should remain one of the objectives of economic policy, it should not be the primary one, argues Charles Seaford, head of the London-based Centre for Well-being at the New Economics Foundation, in his blog post. The limitations of growth as an indicator of wellbeing point to the urgent need to investigate what exactly constitutes human wellbeing.

Henk Molenaar, executive director of WOTRO Science for Development in The Hague, the Netherlands, neatly summarizes the perils of our devotion to growth: ‘Growth is a built-in necessity of capitalism that forces itself upon us as growth compulsion. Its lure is based on a distortion of our perception. We feel that growth allows us to satisfy our needs, and we fail to see that growth compulsion leads to the continuous multiplication of needs, the general spreading of scarcity, and the increase of inequality.’

The alternatives

Rather than throw GDP out with the bathwater, we need to demystify it and determine its rightful place in evaluating collective wellbeing. And in the process, Molenaar warns, ‘let us be wary … of demonizing it,’ because growth does have its benefits as well. According to Seaford, we should keep in mind that greater material consumption does improve wellbeing, particularly among the least well off – though increased economic activity, as measured by GDP growth, does not necessarily translate into higher income for the least well off.

This is one of the major reasons why GDP per capita is an inflated measure of wellbeing and should be approached with caution. Moreover, there are a range of factors that many people consider equally, if not more, important to their wellbeing than income. And lastly, the association of growth with a rise in carbon emissions and other threats to sustainability should not necessarily be a feature of our future economy. Seaford urges us to take these factors into account, as they illustrate the complexity of growth.

Economic growth is generally considered an important driver of human development. According to Nicky Pouw, development economist and assistant professor at the University of Amsterdam, the Netherlands, economists disagree on whether it is just one aspect of human development or whether it is the crucial ingredient. Seaford warns that we should beware of the ‘curiously ideological character’ of the growth debate. ‘Growth is not necessarily a good or bad thing,’ he argues. ‘However, it should not be the primary objective of economic policy.’

Being for or against growth is missing the point. Rather, we should be discussing alternative indicators that policy makers can use to meaningfully measure a society’s economic success. ‘Growth,’ adds Lucia Nass, who works as an independent capacity development facilitator, ‘should not be about what’s good for business, but about what’s good for society.’

Contributors to the discussion agree that GDP growth is severely limited as an indicator. But in the absence of an alternative, ‘GDP becomes the default option and growth becomes the primary social objective,’ Charles Seaford observes. This is why we need a new method for measuring progress – the sooner the better. Indeed, much of the debate centred on the question of what this alternative could be and where it can be found.

Pouw’s framing of wellbeing as something that must be ‘understood in a global, interconnected way’ was applauded by the blog’s readers and contributors. This approach is what should steer our development policies nationally and globally, Pouw contends. Lucia Nass emphasizes the importance of a truly global perspective by referring to the situation in the Netherlands. ‘Dutch politics today,’ she argues ‘care about the wellbeing of the Dutch without connecting it to the wellbeing of others in this world.’ Similarly, Nicky Pouw asks: ‘How much inequality are we prepared to accept? To the extent that people and countries grow disconnected forever?’

Simplicity and intuitive clarity

Molenaar suggests that, ideally, an alternative indicator would need to have the same ‘simplicity and intuitive clarity’ as the GDP indicator. The GDP concept gains in strength because the series of complex composite indices that are currently being proposed for measuring human development are not up for the fight. One of the driving forces behind a viable alternative would have to be its potential for meaningful use. ‘Nothing better has yet come up,’ Dirk Bol states.

What we need, suggests Molenaar, is ‘a single, powerful concept to rival growth’ as the driving force behind development. Needless to say, this is not an easy task. Nonetheless, the concept is likely to be found in the social nature of human beings and not in the logic of accumulation and competition. If we want to make a difference, we should start looking at and measuring development as a social phenomenon that is ‘nested in relations rather than individuals’, Molenaar contends.

Economics with a public purpose

The ‘corruption’ of the economic profession is a topic that repeatedly surfaces in the wellbeing debate. Katherine Zobre, a recent graduate from the international development studies Master’s programme at the University of Amsterdam, the Netherlands, argues that ‘the loudest voices in the economics communities have failed to serve their public purpose.’ Nicky Pouw supports this statement by drawing attention to ‘the destructive forces of propelling risks’.

Dean Baker, co-director of the Washington-based Center for Economics and Policy Research, the United States, takes it even further. He considers the ‘corruption of the economic profession’ a more fundamental issue than the measurement of wellbeing and alternatives to GDP. ‘If the economics profession is not honest in discussions of its pursuit of growth, then there is zero reason to believe that it would be any more honest in its pursuit of any other measure,’ he observes.

To state his case, Baker offers the striking example of a physician assessing a patient’s health. ‘As a practical matter, no serious economist would argue that economic growth is a comprehensive measure of wellbeing. It is a useful measure in the same way that weight is a useful measure in determining whether someone is healthy. If a person has a near ideal weight, it doesn’t mean that they are not suffering from cancer or some other fatal disease. However, if they are 50 pounds underweight or overweight then it is likely that they have some serious health issues.’

The bottom line here is that any reasonable economist will agree that we need to look beyond GDP, or GDP per capita for that matter, to assess an economy’s health. We need to look at distribution, the state of the environment, the quality of health care and education, as well as a variety of other measures to assess wellbeing.

In response to Baker, Elizabeth Kronoff of the Dubai-based Insaan Group points out that ‘there is no incentive to change policy if there are no personal consequences for poor policy performance.’ In other words, mere evaluation is not enough: we need the political or business will to address failure and success.

Seaford raises the same argument by asking who is to hold economists to account and how. Although accountability may be a big part of the problem, measurement is a component of it by definition. ‘New forms of measurement,’ Seaford writes, ‘are in essence accountability mechanisms. Part of their function is to give politicians (and the public) the tools and the confidence to challenge the professionals.’

So the fundamental problem is a lack of accountability in the economic profession to the public at large, and not merely a problem of economists using the wrong measure. As Pouw argues, economists – especially in the financial sector – should shed their reluctance to take an ethical or moral stance.

New models and theories?

Some contributors argue that yet another set of development models or new economic theories would be redundant. For example, Wieck Wildeboer, development economist and former Dutch ambassador to Oman, Bolivia and Cuba, writes that our present models and strategies sufficiently cover the preliminary requirements for measuring wellbeing. ‘Lack of implementation of [poverty reduction strategies],’ he argues, ‘remains the root cause of poverty, inequality and the lack of opportunity to participate in the benefits of economic growth.’ Instead of new economic theories, development models, or even funding, he argues that what we really need are ‘capable, dedicated, incorruptible politicians and bureaucrats’ to execute these strategies.

Adding to this observation is Russell Lewis, managing director of Rusden Management Services, an Australian company devoted to improving business processes. He emphasizes the need for so-called ‘soft’ skills to complement technical skills training if we want capacity building to be truly sustainable. One contributor, however – Claudio Shuftan, a public health and nutrition consultant – is critical of philanthropies, who, he says, look at capacity building from a purely technocratic perspective.

Nonetheless, the dominant feeling among our contributors is that different economic models are indeed needed to capture the increasingly interconnected array of uncertainties and risks across borders, as Pouw argues. If these models and theories are to effectively promote poverty reduction, then it is important to acknowledge that the well off will have to make significant sacrifices in their living standards.

These changes are required to alter the dependence structure that is inherent to the historical imbalance of power underlying our global economic system. ‘Growth compulsion unavoidably creates and increases inequality,’ Henk Molenaar says. So the first step is to face our growth compulsion, and start resisting it. Pouw further underscores the urgency of this by pointing out that the current distribution of global economic power distribution is temporary. Indeed, the emerging or emerged economies of China, India and Brazil are about to drastically tilt the balance: ‘the benefits of globalization are about to swap owners,’ she writes. So we’d better make haste.

New indicators for measuring wellbeing are some of the practical measures needed to kick-start this process. David Sogge, independent researcher and board member of the Amsterdam-based Transnational Institute, argues that we need to evaluate the financial ‘aid’ from poor to rich countries that comes in the form of illicit unrecorded resource transfers, in the same way that we evaluate official foreign development aid. He acknowledges that such an initiative would face major obstacles, but the ‘resulting information and data collections could trigger breakthroughs, capture the attention of parliamentarians and add to the political momentum for change’. Sogge’s plea gained an enthusiastic following on Twitter in the tax justice community.

‘Sustainism’

There is room for optimism, however. If you look closely, you may notice a pattern of change in the making. Cultural theorist, innovator and policy advisor Michiel Schwarz urges us to embrace this century’s emerging cultural phenomenon – sustainism, as he calls it. Sustainism, Schwarz says, will shape our collective perception of wellbeing and how we design our living environment.

It is important to emphasize the broad cultural meaning of this new ‘ism’. Economics is part of the formula, yes, but it goes much further than that. And rightly so. As Schwarz argues, economics is actually part of culture – not vice versa. This means that we are in charge, because our economies are shaped by what we value, what we desire and how we perceive our future.

Other contributors add to this notion. For example Tanja van de Linde, senior advisor at Plan Netherlands, a children’s development organization, writes that new development models must put greater emphasis on cultural and social exclusion. As Lucia Nass argues, instead of ‘changing the rules of economics, we should focus on changing people’s mindsets first’.

The essential enabling factor of sustainism is that human beings are social animals. Neurosciences have recently confirmed this. Henk Molenaar extrapolates on the social nature of human beings and society by emphasizing our capacity to be emphatic. Without empathy there would be no human society – indeed, it is what makes altruism possible.

Molenaar notes that ‘all this is a far cry from the rational pursuit of self-interest by homo economicus. This perspective [of the human being as a social animal], therefore, holds the promise of pointing at what may be a truly alternative paradigm of development. It implies a search for a social parameter that is substantially different from a material or monetary variable.’

We are already orienting our lives towards sustainism. It has some roots in the sustainability movement, but goes beyond purely ecological concerns. ‘It is where connectivity, localism, globalization and sustainability interact,’ says Schwarz. New values are emerging and concepts are being reassessed. Sharing, being connected, ecologically and socially responsible living, as well as human scale in development are rapidly gaining credence. ‘In the next decades,’ writes Schwarz, ‘sustainism will become the new operating context for redefining our economic models and our strategies for change.’

Patricia Almeida Ashley, professor at the Universidade Federal Fluminense in Brazil, believes that we need to stop looking at policy processes and results from ‘the mechanical view of “dots”’ and instead use a quantum physics view of ‘“waves”, networks and relations’. Explicit stakeholder participation should be part of the entire process of policy conception, planning, implementation and evaluation. ‘Complexity thinking in a ‘wave’ approach requires a proper participative process of policy making,’ she writes. This will prevent those who speak the loudest from being heard at the cost of those who are perhaps not equipped to make their point as forcefully.

Towards a new economics of wellbeing

Most of our contributors advocate a new economics that promotes wellbeing in a holistic way. But where do we start? Wellbeing certainly includes economic security, but it entails so much more than that. Tanja van de Linde points out that the ingredients of individual wellbeing, such as family relationships, work, friends, health, personal freedom and spiritual expression, are all essential to wellbeing. In terms of collective wellbeing, focusing on growth alone will not pay off: we need to focus on distribution and sustainability, too, according to Nicky Pouw.

The rise of an ‘ethonomics’ will be the natural consequence of sustainism, Schwarz argues optimistically. In his view, this will be an economics of sharing, connecting, collaborating and openness. In order to do so effectively, we need to re-evaluate what assets we can exchange, why and how we do so, and how to properly value them, says Katherine Zobre. ’Economists and citizens alike have systematically undervalued the resources and activities that allow the human race to survive and prosper. This is where the ethics have gone. They have become a non-market good, and thereby devalued by an increasingly market-dependent global citizenry.’

According to Henk Molenaar, ‘[t]he best way to start is to look at elements of society that are not ruled by the mechanisms of the market place, that do not follow the logic of accumulation and competition, that are not based on the pursuit of self-interest. Indeed, we should focus on those aspects of social life that are disregarded or even negated and rendered invisible by market ideology.’

This means we need to focus on the social dimension as a separate entity in order to welcome change and start re-imagining development. Allister McGregor supports this notion, arguing that ‘all signs point to the fact that the liberal or residualist view of social reproduction is no longer tenable … [W]e cannot expect positive social reproduction to happen by chance or as a result of the goodwill of some members of society and of women at large.’ He is calling for people to reconsider how moral debates and considerations of human relationships can be reintroduced into this dismal science.

And indeed, the essence seems to lie in our relationships. ’An enhanced understanding of development,’ as Molenaar so eloquently puts it, ‘likely lies in the interplay of individuality and sociality, of individual initiative and social integration, of individual autonomy and social cohesion. But in order to fully grasp this we need a sharper understanding of this social dimension and instruments to measure it.’

Regardless of the things we have that allow us to meet our human needs, it is our relationships that determine whether our lives are worthwhile. That is why we must pursue a social concept of wellbeing. Molenaar succinctly summarizes why these efforts have not paid off yet: ‘Our failure so far to conceptualize a single catching notion of development other than growth, is related to our tendency to see development as something individuals benefit from or have access to rather than as a social phenomenon as such.’

Power to the people

This leads the discussion towards the question of who will affect the change. Manuela Monteiro, executive director of Hivos, the Humanist Institute for Development Cooperation, writes that informed and motivated citizens are the most powerful agents of change. According to her, rather than continuing to attempt to exert influence at ever-higher levels to bring about structural policy changes whose impact on the distribution of wealth and wellbeing is questionable to begin with, we need to refocus by trusting in the creativity of civil society. People are able to change a failed system collectively, she says. Several authors named the recent developments in the Arab world as a symptom of a new wave of social mobilization fuelled by global crises and facilitated by social media.

‘But while spaces for creation and contestation are abundant worldwide, they are disconnected and therefore incapable of challenging the dominant discourse,’ Monteiro says. This is where work needs to be done: global innovative partnerships across sectors are needed to promote transparency and accountability. Tanja van de Linde adds to this by saying that it is not so much economic wealth, but rather political will that determines whether a government is willing to invest its resources in improving human wellbeing. Civil society has a major role to play in pressuring governments to ensure that everyone benefits from economic growth, Monteiro writes.

In this context, conflict should be perceived as an opportunity to find new ways forward, Lucia Nass argues. Conflict should be regarded in a positive light: it indicates ways in which the economic system must change so that it treats society and the environment with respect, according to Diego Murguia, PhD student and researcher at the Wuppertal Institute for Climate, Environment and Energy in Germany. What’s more, it helps us understand the ‘connections between the local appearance of a conflict and the global force driving it,’ he writes. As such, socio-environmental conflict should be viewed as a powerful mechanism with a huge potential to act as a change agent. Quality of life can only be realized collectively, and we need to embed this notion in our mindsets and our models.

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About the Bellagio Initiative:

Context: The Bellagio Initiative on the ‘Future of Philanthropy and Development in the Pursuit of Human Wellbeing’ is a series of global consultations that aims to rethink the framework for philanthropy and development. It seeks inspiration by looking at innovative trends and new opportunities from a wide range of disciplines and practices. The initiative addresses the challenges of promoting human wellbeing in today’s rapidly changing world. The project is led by the Institute of Development Studies and the Resource Alliance, a charity for fundraising, resource mobilization and philanthropy based in London, the United Kingdom, and supported by the Rockefeller Foundation.

The Broker’scontribution to the overall initiative consists of an online debate on a series of questions related to the promotion of human wellbeing in general, and the move towards a global sustainable and inclusive economy in particular.

Framework of the discussion: Development agencies and philanthropic trusts have traditionally used an orthodox economic growth model, the key elements of which are profit maximization and efficiency, in their efforts to reduce poverty. If human wellbeing is the starting point, however, then the focus shifts. Suddenly, development is not only about reducing poverty, but about fundamentally confronting the reasons for the imbalanced distribution of human wellbeing in the world.

The debate was framed in terms of an understanding of sustainability that goes well beyond the natural environment. It explicitly included aspects of global social and political sustainability. Recognizing that the purpose of development is to promote human wellbeing helped to focus the discussion and establish an agenda of issues. This established a new, powerful perspective with a great potential for confronting the challenges facing humanity today and impacting the future.